General Testing of Cash Balance Plan

[AndyH]

Is there any type of 5% or 7.50% gateway requirement when general testing a CB plan by itself, i.e. not in conjunction with a DC plan?

[SRM]

The proposed cash balance regulations would have required a minimum gateway to test a cash balance plan on a benefits basis (assuming the broadly available exception is not met).

But since the proposed regs were withdrawn, albeit for other reasons, I do not think the minimum gateway requirements would apply.

[JAY21]

I would agree with SRM. On same overall subject, has anyone found a method/strategy to design a general tested cash-balance plan that produces as good of results (discrimination wise) to a DB-DC Combo plan that uses 8.5% for testing (yes I realize the GATT subsidy on the DB plan must be tested too). Is the fact that the cash-balance plans have the whipsaw issue, and thus tend to promote the use of a low GATT interest credit rates the key to them not producing as good of results for general testing ? I realize there are other benefits of cash-balance plans (understandability, not needing 2 plans like a DB-DC combo, same contribution for partners etc) but focusing JUST on general testing when using GATT interest credits it just doesn't seem to produce that great of results. I suppose if they eliminated the whipsaw issue we might see that change though ?......just thinking out loud....

[Guest penman]

I realize the GATT subsidy on the DB plan must be tested too

What has been going on with this issue? Has the IRS issued any formal or informal guidance that the GATT subsidy must be included in an EBAR?

Is "everybody" doing this (including the subsidy)?

[SoCalActuary]

Jay - I'm in agreement. The plan rates in the CB plan produce the benefit at retirement, not the 8.5% rates you can use in the cross-tested DC. This produces a lower benefit for the same dollar account balance, and less favorable results.

On an editorial note, we have been able to promote DC plans because their interest rate is not tied to any realistic economic rates, while DB plans are tied up with about a dozen different interest rate restraints, and not all consistent either.

What would happen if cross-tested plans had to use the proposed new funding rates with interest rates tied to the yield on bond maturities? The DB plans would start looking a lot better!

[JAY21]

penman: I probably should have said the GATT subsidy "likely" needs to be tested. As far as I know the issue hasn't been resolved for sure, but I thought more practioners were leaning towards thinking it needed to be tested than say a couple or years ago. I would love to not have to test this if other practioners feel it definitely doesn't need to be tested.

[mwyatt]

I've always wondered when the '90 "standard" interest rate range of 7.5-8.5% codified in 401(a)(4) would be revisited. Might make the cross-tested plans a might less attractive given current rates...

[Tom Poje]

on the other hand, if they were to eliminate the taxable wage base for purposes of soc security, then that would eliminate integrated plans, which might make cross tested more attractive. of course, imputing disparity would disappear as well...

[Guest Harry O]

On the GATT "subsidy" issue . . . interesting to note that the recently re-reproposed relative value regs say that a plan will not fail the requirement that the QJSA be at least as valuable as any other optional form merely because the amount payable under another optional form must be calculated using the GATT assumptions. One would hope that this is evidence that this "subsidy" should be ignored for nondiscrimination testing purposes as well.

[MGB]

WHAT?? You mean to imply there ought to be consistency between regulations? Sounds like a pipe dream that only Hunter S. Thompson, rest in peace, would come up with.